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intention to create a debt, with a reasonable expectation of
repayment, and did that intention comport with the economic
reality of creating a debtor-creditor relationship?” Litton Bus.
Sys., Inc. v. Commissioner, 61 T.C. 367, 377 (1973).
Transactions between closely held corporations and their
shareholders must be examined with special scrutiny. Elec. &
Neon, Inc. v. Commissioner, 56 T.C. 1324, 1339 (1971), affd.
without published opinion 496 F.2d 876 (5th Cir. 1974).
Although the factors offer an objective measure of the
taxpayer's intent, we must examine them in light of all the
relevant facts and circumstances. Estate of Chism v.
Commissioner, 322 F.2d 956, 960 (9th Cir. 1963), affg. T.C. Memo.
1962-6. Petitioners must show that bona fide loans were created
and that the payments they received were repayment of these
loans. Welch v. Helvering, 290 U.S. 111, 114 (1933).
Here there is little tangible evidence that PPP and
petitioners intended to create a bona fide debtor-creditor
relationship. There is no written evidence substantiating the
intentions of the parties, the rate of interest to be charged,
any collateral for the “loan”, or any right of petitioner to
enforce payment from PPP. There is no evidence that the payments
made by PPP to or on behalf of petitioner were the result of, or
in satisfaction of, any established expectation of loan
repayment.
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